Security Shredding and Storage - a shredding industry publication

Export Regulations Office paper remains stable during year of scrap pandemonium

By Ken McEntee
The Chinese government made 2017 a year of pandemonium for the global old corrugated container (OCC) and mixed paper markets, but office paper remained generally steady throughout the year.

For sorted office paper (SOP), the year began on a good note.

During recent years, U.S. mill prices for SOP tended to decline by $20 to $30 per ton during the fourth quarter. During the last quarter of 2016, however, prices for most recovered paper grades, including SOP, pushed surprisingly upward, then improved slightly during the first quarter of 2017. Strong demand from Mexican mills supplementing steady buying from U.S. tissue makers, was generally cited as the market’s driving factor.

Since May, however, U.S. prices have generally demonstrated their typical trend, holding steady through the summer, then tailing off during the third quarter.

According to market surveys done by The Paper Stock Report, the average national mill buying price for SOP started the year at $186.25 per short ton, bumping up a slight $1 per ton, then holding through the summer at just under $180 per ton.

In October, U.S. mill prices dropped $10 per ton, then fell another $13, settling around $155 per ton in November. December saw a slight up-tick in most U.S. regions.

Because a small portion of SOP and other deinking grades generated in the U.S. are exported to China, the grade escaped the turmoil that ensued with the announcement by the Chinese government in July that it would prohibit the import of “unsorted waste paper” and other recyclable commodities at the end of the year. The U.S. trade association, the Institute of Scrap Recycling Industries (ISRI), and the international Bureau of International Recycling (BIR) called the China’s policy “devastating” to the global recycling industry.

The July announcement came after several months of rumors that China had planned to restrict mixed paper imports as early as the beginning of June, a measure that didn’t happen. Soon after it’s July announcement, however, China further announced that it would prohibit, at the end of the year, the importation of any recovered paper that exceeds a 0.3 percent level of contamination – a measure that literally nobody considers to be achievable, particularly for residential paper processed at material recovery facilities (MRFs). China’s contamination level remained a matter of speculation and concern as 2017 drew to an end.

Prior to China’s bombshell, U.S. suppliers were enjoying a nearly unprecedented and unexpected run-up in OCC prices. According to The Paper Stock Report, the average national mill buying price for OCC shot up from under $140 per ton in January, to more than $170 per ton in February, then peaking well over $200 per ton in July with a April and May free fall in between.

Sources cited a strong American economy for pushing containerboard mill demand for OCC. Through the year, domestic containerboard continued to run about 3 percent better than in 2016. Exports, meanwhile, remained solid, despite early uncertainty about how the election of President Donald Trump would impact overall trade with major partners China and Mexico.

“Everybody knew that the prices weren’t going to stay where they were for very long, and they didn’t,” said one exporter during the April trough. “But nothing has changed as far as business. Business continues to be very good. The domestic economy is very strong and mills are running very well. And we haven’t even gotten into the busy season yet.”

U.S. demand for OCC was so strong in March, traders reported, that mills in the Midwest and southern areas of the country were trucking in loads from California and even from Mexico – an unusual phenomenon.

Among higher grades, prices of pulp substitutes were slowly creeping upwards, gaining about $30 per ton in North America by summer. Markets for deinking grades, like SOP, varied by location in the U.S. Mexican tissue producers reportedly had strong inventories and were not buying heavily, negatively impacting markets in the southern U.S., while some mills in the Midwest and eastern U.S. were buying strongly, stabilizing overall prices.

Despite reports that U.S. mills were loaded with OCC, prices for that grade remained near record levels throughout the summer.

Following China’s July announcement that it would not accept unsorted paper after December 31, exporters speculated how Chinese mills would run without the 2.5 to 3 million tons of mixed paper that the U.S. ships to China annually.

As the Southeast U.S. recovered from two powerful hurricanes in August and September, exporters began to report major disruption in orders to China. The disruptions were caused by the suspension of government issued import licenses that enabled mills to bring recovered paper into the country - a development that many traders deemed as more harmful to the market than the impending ban on mixed paper imports.

"The licenses are running out on a daily basis and it's getting very hard to get an order into China," one exporter said. "It's created a domino effect. The other Asian mills know what's going on and the prices are plummeting."

With limited export demand, old corrugated containers (OCC) and other grades were backing up in the U.S. during a time when the high production season for containerboard was coming to a close. As a result, domestic OCC mill buying prices were tumbling, particularly on the West Coast, where suppliers noted August-to-September reductions ranging from $30 to $50 per ton. Prices in other regions of the country fell as well, but not as severely as on the West Coast.

In September, the average domestic OCC price was higher than $175 per ton. Within a month, the price dropped to $110.

Slowly, most import licenses were reinstated, but OCC prices held flat through December.

Prices for SOP also began to tail off in October, but the reductions had little to do with exports to China.

Of the more than 21 million tons of recovered paper exported to China annually, SOP and other deinking grades account for only 4 percent – although that percentage has ticked up to 5 percent for this year through October. The main reason is less because of increased shipments of deinking grades than it is because of the reduction of mixed paper and OCC exports during September and October.

Deinking grade exports have held relatively steady throughout the year, with a high mark of 88,000 tons shipped in August and a low mark of 73,000 tons shipped in February. Exports to China topped out at 6,300 tons in March, and a low mark of 1,000 tons in August.

Presently, the export issues with China remain unresolved. China has notified the World Trade Organization (WTO) that it will modify its standards for imported recyclable materials by March 1, 2018.

In response, the National Waste and Recycling Association (NWRA) comments with the Standardization Administration of China saying that its standards “pose significant barriers to the export of mixed paper and other recyclables into China through the implementation of contamination limits that are impossible to meet, according to industry consensus.”

“NWRA supports high quality standards for recyclable materials and supports policies to achieve them," said Darrell Smith, NWRA CEO. "Our member companies’ processing facilities work to completely eliminate all materials that do not meet those specifications. We support the use of existing, internationally recognized specifications. The global recycling industry will face significant challenges should these standards move forward as written."

Ken McEntee is editor and publisher of The Paper Stock Report (www.recycle.cc), based in Strongsville, Ohio.

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